Sunrise Bhd - 2009

MARC has affirmed its rating on Sunrise Berhad’s RM400.0 million Islamic Medium Term Notes (IMTN) facility at A+ID. The rating outlook is maintained at stable. The affirmed rating reflects Sunrise’s sustained financial performance supported by strong operating margins and huge unbilled sales, its fairly sizeable land bank to sustain developments in the medium term and its low leverage position. These strengths are moderated by the challenging market conditions for its market niche of high-end property development.

Sunrise is credited with the inception of Mont’ Kiara as a high-end residential area through its flagship Sunrise Mont’Kiara Integrated Global Village development, which comprises high-end condominiums, bungalow projects and retail-commercial centres. The group has built a strong brand identity associated with high quality lifestyle projects which enables it to command premium prices for its developments. As a result, MARC notes that the group has been able to sustain fairly high operating profit margins at an average of 28.9% over the last three years. Notwithstanding this, MARC believes that Sunrise’s subsequent property launches in Mont’ Kiara could face price competition from competing developments in the same vicinity catering to the same market niche. 

For financial year ending June 30, 2009 (FY2009), Sunrise has recorded total gross development value (GDV) and total sales of RM2.7 billion and RM2.3 billion respectively for its ongoing development projects. The group has been able to achieve high take-up rates for the majority of its projects. The group’s substantial future expected billings from contracted sales (unbilled sales) amounting to RM869.8 million as of September 30, 2009 provides revenue and earnings visibility for fiscal year 2010 and 2011.

Sunrise recorded a 17% gain in revenue and a 2% increase in pre-tax profit to RM803.9 million and RM205.8 million respectively against the previous financial year arising from higher sales from its ongoing developments and one-off gains on disposal of the commercial units in Plaza Mont’Kiara and its Australian asset. The group’s operating cash flow has decreased significantly to RM10.2 million (FY2008: RM66.4 million) mainly due to the increase in development properties of RM61.0 million and receivables of RM72.5 million as a result of the increase in ongoing projects to meet the completion deadline. Going forward, development property cost and receivables will likely remain high, causing operating cash flow to remain subdued, given the expected launch of its future projects in the near to intermediate term.

The group’s debt-to-equity (DE) ratio declined to 0.51 times in FY2009, arising mainly from the 28.4% increase in shareholders’ equity to RM975.4 million following a private placement of 44.8 million new ordinary shares. As of September 30, 2009, its DE ratio reduced marginally to 0.48 times, well within the maximum 1.0 time DE ratio covenant under the issue structure. Sunrise’s cash and cash equivalents of RM53.8 million and the group’s unutilised credit lines of RM461.4 million (including the available IMTN facility) should ensure that Sunrise is in a comfortable liquidity position to meet the RM100 million IMTN facility redemption in April 2010.

The stable rating outlook reflects MARC’s expectations that Sunrise’s business and financial metrics will be in line with its current rating in spite of challenging business conditions for developers of high-end residential properties.

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Challenges/Risks